Budget Quotes by Quantum Mutual Fund and Quantum Advisors spokespersons

 Chirag Mehta, Sr. Fund Manager- alternative Investments, Quantum Mutual Fund

No reduction in gold duty – a missed opportunity

Finance Minister Nirmala Sitharaman disappointed gold markets by skipping to reduce custom duty on gold in the Union Budget of 2022-23.

Custom duty on gold currently stands at 10.75% which is very high and contributes to price distortions, working against the various gold market initiatives undertaken by the government.

Higher government intervention through higher custom duty has over the years ensured that India, despite being the world’s second-largest consumer of gold, importing 800-900 tons annually, is a price taker.

International gold prices are used to set the domestic gold price in India. The International gold price is used as a base price and converted to Indian rupees using the Dollar/ Rupee rate and we add to it various Indian duties and levies to arrive at the Indian gold price

This domestic price is different from the international price to the extent of levies and duties which currently amounts to a significantly large 14%. A duty reduction can help bring domestic gold prices closer to international prices to the extent of reduction in levy and enable more efficient functioning of the gold markets in India.

The large gap between domestic and international prices creates lucrative margins and encourages illicit imports of the precious metal.

Price distortions also make it difficult to channelize the hoard of India’s gold savings into circulation and thereby integrate the gold market with other financial markets.

Thus, rationalizing the custom duty and minimizing these price distortions have been a long-standing demand of the bullion industry which we believe will go a long way in developing the gold sector and bringing India to the centre of international gold markets. Rising government revenues did provide them with a window of opportunity to rectify this anomaly for the greater good of consumers and the development of gold markets. However, it seems like a missed opportunity this time around.

Pankaj Pathak, Fund Manager- Fixed Income, Quantum Mutual Fund

·        Higher than expected Fiscal deficit and absence of any announcement on global bond index inclusion is a negative for the bond market.

·        Higher borrowing requirements of the center and state governments will put pressure on the bond markets.

·        We expect bond yields to further surge with a bigger impact on the longer-term bond yields.

·        Fixed Income investors should stick to categories like liquid funds or other short-duration fund categories.

Sorbh Gupta, Fund Manager- Equity, Quantum Mutual Fund

• The government continues to focus on the supply side through high allocation to CAPEX. While this is good for the long term, we believe a boost on the demand side through tax cuts would have helped the economy in the near term via higher consumption. 
• The government has resisted being populist despite big state elections & which is a big positive. 
• The domestic focussed cyclical sector like banks, materials & capital goods are expected to do well. 

Arvind Chari, CIO- Quantum Advisors

Government continues to priorities growth; but income support missing

The government has stuck to its priority to boost growth over fiscal consolidation. The budget for Capital Expenditure spending from INR 5.5 trillion budgeted for FY 22 to INR 7.5 trillion for FY 23 is a massive increase.

If the central and the state government is able to implement and spend those amounts in a timely and efficient manner, it could lead to a multiplier effect in the economy. This should enable the continued economic recovery and extend the growth over the next 2-3 years. We had noted that there are several tailwinds to the Indian economy and we are on the cusp of a sustained economic revival. This increase in government CAPEX spending should be able to revive private CAPEX activity and bodes well for Indian equities over the medium term.

The priority towards growth means that the bond markets will see a slower fiscal consolidation and will have to face a very high level of borrowing both from the centre and states. In the backdrop of higher oil prices, a hawkish US FED and the pressure on the RBI to tighten monetary policy, the higher borrowing will see bond yields rising. Across the yield curve, over the course of the year, we will expect bond yields to rise by 20-30 bps for now. The RBI will also have to start hiking its policy rates and we would expect at least a 100 bps increase in rates in FY 23.

The major disappointment for us continued to remain on the governments focus on boosting supply side over demand. We would have loved to see some balance between boosting industry and supporting individuals.

Think of the sacrifices the Indian consumer has made over the last 2 years.

Lost livelihoods, lower incomes, health costs, higher oil and food prices, higher taxes on income and GST. The government's response in terms of some income support or a lower tax burden has been missing.

The economy faces short term risks from higher global and domestic inflation. In this respect, the government’s continued increase in import duties to boost domestic manufacturing on the back of improving growth will lead to higher cost pressures in the economy. We would have liked to see the government take some measures to manage future cost pressures with duty cuts.

The announcement also had no mention of rural employment, the impact on the informal enterprises and the continued divide between the formal and the informal economy. We do recognise that higher growth will trickle down over time, however, there should have been some immediate relief to the economic segments which were impacted by the pandemic.

Arvind Chari’s Quote - Budget Announcement on Digital Currency and Digital Assets

Digital Currency

A timeline to launch a Digital currency by the RBI suggests that much work has been done and the government and the RBI have their blueprints and the mechanism of the digital currency.

It will be interesting to see how it's launched. Whether the RBI directly issues digital rupees to the citizen (tier 1). Or whether the disintermediation happens through the banking system, with the RBI issuing the digital currency to the bank and the banks passing it on the individuals with the bank account

A direct Tier 1 issuance has its benefits in terms of the government and the RBI using the digital rupee as a means for direct benefit transfers, time-based coupon payments, time-based income transfers. Exciting times, and once launched, as we saw with the UPI, it will spawn other private-sector innovations.

Digital Assets

The government by choosing to tax digital assets (read cryptocurrency, NFTs) means that they are not outright banned. This is a good step. Banning it would have prevented innovation and new development. These are new technologies and new age assets and we yet do not know their significance for the future. We would still expect the government and RBI to come out with detailed regulations to foster the growth of the industry as well as enable investor protection.